08-19-2009, 04:34 AM
Dears
IAS 24 does not provide for distributing your assets free of cost to related parties. I wonder if IAS 24 allows to incorporate a company, collect public money, buy assets and hand over free of cost to others (may be related parties). I suggest reading preamble of IAS 24 and try to understand the intent of the pronouncements.
If the entity is owning a building, it must be incurring costs in connection with ownership that may be in the shape of maintenance, repair, insurance or at least opportunity cost of holding such asset.
One may read section 255 of Companies Ordinance 1984. The expenditure incurred by an entity must be for the sake of or in connection with its business. If the building is not being used but its expenditure (at least opportunity or financial cost of holding) is incurred, this will become illegal. This is not all about the answer but an example which I believe cannot make some readers understand.
Section 208 of CO84 lays down requirements for investment in associates. It stipulates that return from associate must not be lesser than the finance cost of the investing company. This is also an example to understand.
IAS 36 is there to raise impairment issues if building gives no returns (value in use analysis). This may result recognising impairment even more than the depreciation being avoided.
Related parties transactions have to be on fair values (IAS 24 and Fourth schedule to CO84 and listing regulations); and if it does not happen regulators are there to investigate the substance.
The Auditors' Review Report on Compliance With Code of Corporate Governance (in case of listed companies) will specially include an opinion on related parties transactions' approval procedures as per law.
IAS 16 requires re-assessing residual values and useful lives at least at each financial year end. If building does not have to cause flow of economic benefits, its useful life will raise issues for financial reporting and auditors as well and eventually for regulators.
It's not so simple to allow others to use entity's assets free of cost and thus undermining the interest of entity's own stakeholders.
I just quoted some examples and referred some related material and leave it to decision of the readers.
Since I doubt on the intent of raising the question, I don't consider necessary to provide exact answer.
Regards,
Kamran.
IAS 24 does not provide for distributing your assets free of cost to related parties. I wonder if IAS 24 allows to incorporate a company, collect public money, buy assets and hand over free of cost to others (may be related parties). I suggest reading preamble of IAS 24 and try to understand the intent of the pronouncements.
If the entity is owning a building, it must be incurring costs in connection with ownership that may be in the shape of maintenance, repair, insurance or at least opportunity cost of holding such asset.
One may read section 255 of Companies Ordinance 1984. The expenditure incurred by an entity must be for the sake of or in connection with its business. If the building is not being used but its expenditure (at least opportunity or financial cost of holding) is incurred, this will become illegal. This is not all about the answer but an example which I believe cannot make some readers understand.
Section 208 of CO84 lays down requirements for investment in associates. It stipulates that return from associate must not be lesser than the finance cost of the investing company. This is also an example to understand.
IAS 36 is there to raise impairment issues if building gives no returns (value in use analysis). This may result recognising impairment even more than the depreciation being avoided.
Related parties transactions have to be on fair values (IAS 24 and Fourth schedule to CO84 and listing regulations); and if it does not happen regulators are there to investigate the substance.
The Auditors' Review Report on Compliance With Code of Corporate Governance (in case of listed companies) will specially include an opinion on related parties transactions' approval procedures as per law.
IAS 16 requires re-assessing residual values and useful lives at least at each financial year end. If building does not have to cause flow of economic benefits, its useful life will raise issues for financial reporting and auditors as well and eventually for regulators.
It's not so simple to allow others to use entity's assets free of cost and thus undermining the interest of entity's own stakeholders.
I just quoted some examples and referred some related material and leave it to decision of the readers.
Since I doubt on the intent of raising the question, I don't consider necessary to provide exact answer.
Regards,
Kamran.
